UT (Tax & Chancery) UT/2022/0092 - [2024] UKUT 00373 (TCC)

Transactions entered into by different parties at different points in time will in practice almost inevitably be part of the same “arrangements” if they are effected pursuant to a single plan formulated before they are effected, and if the parties to each of the transactions are aware of that plan and are acting with the intention of giving effect to it ([56]).

In general, it may be said that it is not tax avoidance to accept an offer of freedom from tax which Parliament has deliberately made, but that it is tax avoidance to adopt a course of action designed to conflict with or defeat the evident intention of Parliament by taking advantage of a fiscally attractive option afforded by the tax legislation without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in tax liability (Inland Revenue Commissioners v Willoughby [1997] 1 WLR 1071 (“Willoughby”), 1079B-G, 1081B-D) ([59]).

Where there are two ways for a taxpayer to carry out a genuine commercial transaction, it is natural for the taxpayer to choose the way that will involve paying the least amount of tax, and that the taxpayer by making that choice cannot for that reason alone be said to be acting with a main purpose of avoiding tax (Commissioners of Inland Revenue v Brebner (1967) 43 TC 705 (“Brebner”), 718H-I). However, a taxpayer in this situation may well be acting with a main purpose of avoiding tax if the chosen way conflicts with or defeats the evident intention of Parliament. The mere fact that the taxpayer is carrying out a genuine commercial transaction does not mean that no means adopted for effecting that transaction can ever be tax avoidance ([60]).

“Purpose” means the intended effect of the arrangements, not the motive of the taxpayer for wanting to achieve the intended effects. A determination of “purpose” therefore does not necessarily require a determination of the subjective state of mind of the taxpayer, but may be ascertainable from the terms of the arrangements themselves. Where there is a complicated series of transactions that were the result of a concerted plan, and where a consideration of the whole of the transactions shows that there was concerted action to achieve an end of the avoidance of tax, then one of the ends sought to be achieved was the avoidance of liability to tax (Newton v Commissioner of Taxation [1958] AC 450 (“Newton”), 465-467) ([61]).

There is a distinction between the purpose of arrangements, and the question whether the arrangements are effective in achieving that purpose. The fact that arrangements ultimately fail to achieve their purpose (for instance, because they ultimately fail to satisfy the necessary legal criteria to produce the intended legal effect) will not retrospectively negate the fact that they had that purpose. Thus, arrangements can have the purpose of avoidance of liability to tax, even if ultimately no liability to tax is avoided ([63]).

A purpose will be a “main” purpose if its achievement is one of the primary aims of the arrangements. A purpose can be a “main” purpose, even if it is not as significant a consideration as another main purpose. Thus, if arrangements are driven by two particularly significant aims, A and B, as well as other subsidiary aims, both A and B may both be “main” purposes even if the taxpayer considers A to be more important than B ([69]).

Applying this analysis to the facts, at [87] the FTT concluded that the Transaction formed part of arrangements of which one of the main purposes was avoidance of liability to tax:

“87….(1) The series of transactions that took place on 5 July 2011 were, collectively, “arrangements” within the meaning of paragraph 2(4A)(b)…

(2)

The transfer of the Lease from B64 to the Appellant was one of the steps envisaged in the step plan, and thus formed part of these arrangements ...

(3)

One of the purposes of the arrangements, viewed as a whole, was to achieve the envisaged corporation tax advantage. Even if the achievement of this tax advantage may not have been in contemplation at the time that idea of transferring the Tower into an SPV was first raised, once the group became aware of the possibility of achieving this tax advantage it became a major consideration in the arrangements. Given the magnitude of the expected corporation tax advantage, the Tribunal is satisfied that it would have been very important to the Appellant to ensure that the arrangements were implemented correctly to ensure that the tax advantage was in fact realised.

(4)

Detailed planning to this end was undertaken. The PwC step plan went through several iterations, and significant professional fees were incurred for this purpose. In advance of the transactions implementing the arrangements, the necessary legal agreements were negotiated and agreed (paragraph 83(2) above), and the transactions were executed in a carefully planned sequence, in accordance with the step plan prepared by PwC.

(5)

The Tribunal is satisfied that obtaining the tax advantage became one of the main purposes of the arrangements (paragraphs 61-70 above).

(6)

This purpose amounted to avoidance of liability to tax for purposes of paragraph 2(4A)(b) Schedule 7 FA 2003.

(7)

This was not a case where there were two obvious or standard ways of transferring the Tower from SGSL to the Appellant, and where the Appellant simply chose the way that was least costly in terms of tax.

(8)

Rather, the PwC step plan was a bespoke plan, devised by professional advisers, for an arrangement that would not only reduce or eliminate the tax costs of transferring the Tower from SGSL to the Appellant, but would in fact confer a very substantial positive financial gain on the Appellant. It involved a complicated series of transactions that were the result of a concerted plan. A consideration of the whole of the transactions shows that there was concerted action to an end of the avoidance of tax (paragraph 61 above). Moving the Tower to an SPV, the other main purpose, could have been achieved by far less complicated means. The complicated series of transactions can only have been intended to place the relevant group members outside liability to tax that would otherwise have attached to the group, whether or not the Tower had been transferred from SGSL to another group company. The step plan itself indicated that the intended effect of this series of transactions was to obtain this tax advantage.

(9)

The step plan did not involve taking advantage of any offer of freedom from tax which Parliament has deliberately made (paragraph 59 above).

(10)

Rather, the step plan involved a course of action designed to conflict with or defeat the evident intention of Parliament, by removing from tax liability some £170 million of latent profit that would otherwise have been taxable.

(11)

The fact that ultimately no tax was avoided does not mean that the arrangements cannot have had the purpose of avoiding liability to tax (see paragraph 63 above). The Tribunal does not accept the Appellant’s contention that this conclusion means that merely thinking about tax avoidance, without actually avoiding tax, will constitute tax avoidance. The Appellant in this case did not merely think about tax avoidance. The Appellant took professional advice on steps that could be taken to achieve a significant corporation tax advantage, and then entered into a series of legal transactions to implement that advice in practice. It then submitted a corporation tax return reflecting the tax advantage to which it believed that it was entitled. It might well be that the Appellant would ultimately have enjoyed that tax advantage in practice if HMRC had not enquired into the return.”